Increased wage and price expectations are bad news for Norges Bank. – May result in a higher and more permanent interest rate peak than announced, Handelsbanken believes.
PRICE GROWTH, which is still well above target despite the highest interest rate since 2008, is among the topics of Norges Bank’s quarterly expectations survey. Price and wage expectations are important for interest rate setting. Photo: Gorm Kallestad / NTBPublished:
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Inflation expectations are rising among the vast majority, according to Norges Bank expectations survey for the third quarter.
Households now envision price growth of 4.3 per cent over the next 12 months, up 0.3 percentage points from the previous quarter.
Price expectations among economists and the parties in working life have also increased this quarter, while those of business leaders remain unchanged at 5.8 per cent.
The survey measures what economic experts, the parties in working life, business leaders and households think about the development in, among other things, wages, prices and employment. It is carried out four times a year.
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Norges Bank sets the interest rate to maintain confidence
Inflation expectations affect the economy in several ways, including through savings and investment decisions, companies’ pricing and wage negotiations, and are therefore very important for interest rate setting.
The price increase has been far higher than Norges Bank’s target for interest rate setting of two per cent in the wake of the pandemic and the war in Ukraine. This has resulted in a number of interest rate increases to the current level of 4.0 per cent, and notice of a further increase in September.
Bad news for Norges Bank
Belief in real wage growthreal wage growthWage growth after price rises have been deducted weakens at the same time as the increased price inflation. The parties in working life now expect real wage growth of 0.1 per cent, down 0.4 percentage points from the previous quarter.
Excluding inflation, annual wage expectations have increased to 5.0 per cent next year, up 0.8 percentage points from the previous quarter. By comparison, Norges Bank expected 4.7 per cent next year in its monetary policy report from June.
Handelsbanken believes this is bad news for Norges Bank. Higher wage growth can lead to a negative spiral where it becomes more difficult to bring inflation down.
– Salary expectations for next year are significantly higher than estimated by Norges Bank. This could result in a higher and more permanent peak in interest rates than announced, writes Handelsbanken in a comment.
Before the summer, Norges Bank announced an interest rate peak of 4.25 per cent this autumn. At Thursday’s interest rate meeting, the bank announced a new increase in September to 4.25 per cent, but the governor of the central bank would not answer whether this is still likely to be the peak.
Fewer expect increased profitability
At the same time, there are fewer business leaders who expect improved profitability, and more who see a weakening in this area.
The number of people employed has also fallen, according to business leaders. In total, 27 per cent of business leaders envisage having more employees in 12 months, down 3 percentage points from the previous quarter.
There are 26 per cent who expect to have fewer employees, up 3 percentage points from the previous quarter.
2023-08-18 08:01:22
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